As the market for PC microprocessors — in which AMD has for decades been a far-distant No. 2 to the market’s global leader, Intel — has dwindled amid softening demand for PCs and servers, AMD has sputtered badly. Read is said to be assembling a new corporate strategy that would involve pivoting toward chips aimed at tablets and smartphones, and an update on that strategy is expected next week.

But in the meantime there is a new fundamental concern about AMD’s ability to survive long enough as a going concern to embark on that strategy: AMD is running low on cash.

The concern comes from Stacy Rasgon, an analyst at Sanford Bernstein in New York, who encapsulated his worries in a research note issued to clients today. Once bullish on AMD given its relatively low price and the prospect that AMD stood a fair chance of generating cash at a healthy clip, Rasgon has now changed his mind. “The combination of a weak PC market and poor execution is significantly pressuring the top line, while the company appears to be suggesting long term gross margins will be significantly lower than in the past,” Rasgon wrote.

AMD has $1.3 billion in combined cash and marketable securities as of the quarter ended Sept. 29, down from $1.6 billion at the end of the quarter ended in June. As its profit margins and free cash flow contract, AMD will consume cash at such a rate that it will be down to $600 million by the end of 2013.

On top of that, AMD’s debt load will become a more urgent concern. The company finished its September quarter with more than $2 billion in long-term debt, up from $1.53 billion in the June quarter. And the cost to protect against a default on that debt via credit default swaps has started to spike. As Bloomberg News noted today, debt investors think AMD has a 62.5 percent chance of defaulting on its debt within five years, up from 51 percent on Oct. 17, the day before it reported earnings.

It now costs more to insure against a default on debt from AMD than it does to insure debt from Finland’s troubled wireless phone concern Nokia, or from Freescale Semiconductor, also facing cash troubles. “Apparently the debt markets believe AMD is more at risk from liquidity issues than even Freescale. We think this is likely correct,” Rasgon wrote.

Without a turnaround in the market for personal computers — something that’s essentially impossible to predict right now — or a significant improvement in AMD’s ability to generate a healthy profit on its chips, the cash burn will continue.

If it gets as bad as Rasgon says it might, that’s going to raise some uncomfortable questions about AMD’s long-term viability and reignite the recurring takeover chatter that hits the company from time to time. The problem is, as we’ve pointed out a few times before, AMD will be a complicated company for any potential suitor to buy, mainly because of its unusual relationship with rival Intel.

It’s not the first time that the conventional wisdom has counted AMD down for the count. In the late 1990s, it was bloodied and beaten and seemed all but defeated. Then in 1999 it announced a novel approach to server chips that within a few years proved so successful in the marketplace that AMD gave mighty Intel some sharp competitive headaches.

A new strategy is coming. AMD is supposedly close to announcing something called an “ambidextrous” strategy that will in some way include using chip cores licensed from ARM, the British holding company whose technology lies at the heart of most of the chips powering the world’s smartphones and tablets, including the iPad, the iPhone and numerous devices running Android and Windows.

This would be a fundamental shift in AMD’s approach. Its prior CEO, Dirk Meyer, and his predecessor, Hector Ruiz, had been advocates of the so-called “x86 everywhere” philosophy. The phrase “x86″ refers to the basic instruction set used by chips from PC microprocessors from Intel and AMD. They are a key part of what makes a PC a PC, and give software developers the world over a common set of assumptions they can make when writing software.

ARM chips, on the other hand, are based around a fundamentally different set of instructions that, among other things, make them especially good at consuming very little power, a must in mobile devices. A variant of Windows known as Windows RT has only recently been created to run on a new generation of notebooks.

Many people expect AMD to supplement its current designs with an ARM-based design, and its recent hiring of a crack ARM designer — Apple’s former head chip designer Jim Keller — certainly raised a lot of industry eyebrows.

I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

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